Professor Gary Gensler vs. SEC Chair Gary Gensler: Crypto Long & Short

If you made a list of people whom the crypto community has taken issue with this year, you’d likely find U.S. Securities and Exchange Commission (SEC) Chair Gary Gensler’s name near the top.

A quick search for his name via social media will deliver a sense of the sentiment currently held towards him. I do not recommend this by the way.

I actually started out as a supporter, for lack of a better term. Even today, I don’t hold any ill will towards him. I don’t know him personally and have no desire to be insulting. I think commentary specific to past statements and present actions are in bounds, however.

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My introduction to Gensler came years ago via the Massachusetts Institute of Technology’s (MIT) “Blockchain and Money” course. Now, keep in mind, I did not attend MIT. Outside of one trip to Fenway Park, I haven’t been within 100 miles of it.

But, in general, I’m very close to my laptop. And MIT did, and still does, offer the “Blockchain and Money” course online for the extremely affordable price of $0.

So, I sat through most of it because, why not? I was interested in blockchain technology, and I loved the price.

I found the course to be measured, informative and detailed. I would recommend that anyone interested in cryptocurrencies take it, to be honest. So, personally, I was pleased when Gensler was named SEC chair in April 2021, as I think many were.

Two years later, I think it’s safe to say that this has changed. As such, I decided to take a second look at the course. Given the current environment, I chose to focus on Lecture 8, which focused on Public Policy.

Granted we have the benefit of hindsight, but perhaps I would find that my disappointment is unfounded. Perhaps present actions are in line with past statements. At the very least I’d get to brush up on policy issues. I started with the assigned readings themselves:

• “Cryptocurrencies: Oversight of New Assets in the Digital Age,” Gary Gensler (July 18, 2018)
• “The Future of Money,” Mark Carney, governor of the Bank of England (March 2, 2018)
• “Nobel-winning economist: Authorities will bring down ‘hammer’ on bitcoin,” CNBC (July 9, 2018)

The first, from Gensler himself, was the longest and provided good context.

His opening salvo, “Blockchain technology has real potential to transform the world of finance,” is one that I initially viewed positively. The same applies to his follow-up: “I’m an optimist and want to see this new technology succeed.”

Yet, that stands in stark contrast to what he said last month from his perch atop one of the most powerful regulators: “Look, we don’t need more digital currency.”

Anyway, here are some other takeaways from Lecture 8:

Illicit activity has been a concern from day one

Gensler’s past statements seem consistent with what he says today. The need to guard against illicit activities and to ensure financial stability and that investors are protected appeared to be at the core of what was discussed in the lecture.

My interpretation is that Gensler believed that broad agreement existed around the need to curtail illicit activity, but that implementation of policies to do so was inconsistent.

This is where I think the SEC is attempting to make waves (some would say too many): by working to establish a framework of implementation that will be emulated on a global scale.

Bitcoin (BTC) and ether (ETH) were referred to as crypto cash commodities, not securities

For all of the discussion around what is and what is not a security today, the course made little mention of BTC or ETH being securities. To the contrary, it was acknowledged that “in terms of market value, probably three-quarters of the space has already been determined by the SEC not to be a security.”

His recent commentary doesn’t seem opposite of this, but seems less definitive, especially specific to ether.

Crypto intermediaries were presented as a viable regulatory target

This is something that maybe I should’ve seen coming. While not discussed at length, approximately six minutes in, the topic of crypto intermediaries was broached and how they serve as viable regulatory targets. A question of why laws historically have been attached to intermediaries was raised as well.

The answer seemed to revolve around systemic risk, and the relative ease in regulating intermediaries chasing smaller entities.

This has been most evident in the recent SEC enforcement actions versus Coinbase and Binance. Allegations of operating as an unregistered securities exchange and broker were levied towards Coinbase. Binance was accused of the same, along with misrepresentation of trading controls.

Public policy strategy does more harm than good

One of the most salient revelations came near the end of the class, when the discussion of public policy development was raised. And I think this is at the heart of the contentious relationship between crypto advocates and Gensler’s SEC.

It was stated, in no uncertain terms, that in the crafting of public policy, “messaging” and “coalition building” are front and center. “Analysis” by comparison was almost an afterthought.

So, while crypto purists argue on the merits of digital asset efficiencies, consensus mechanisms and supply dynamics, crafters of public policy are simply attempting to drive a message home. Because of that mismatch, the two groups are horrible dance partners.

Read more: GOP Lawmakers Suggest Gensler’s SEC Is Gaming News Cycle to Thwart Crypto Legislation

Candidly, that was one of the more disheartening takeaways that I had. It leads me to believe that crypto’s primary critics are more than aware of the benefits of digital assets but are willing to completely ignore them for the benefit of their own messaging, biases … and possibly self-interests.

All told, I enjoyed taking a walk back through Lecture 8. I’ll probably go through others. I do question how the tone of the class would be if taught today, however.

Takeaways

From CoinDesk Deputy Editor-in-Chief Nick Baker, here is some news worth reading:

• DOLLAR BILLS: One of the surprises when you dive deep into covering crypto as a journalist is just how much you have to know about things other than crypto. Knowing about corporate restructuring is often important these days. Some accounting chops can be very useful. And understanding the biggest market of all, foreign exchange, is crucial. Take this story about the relationship between crypto and the U.S. dollar. It’s full of talk of global liquidity, risk appetite, correlations and the like. Not crypto degen stuff!
• XRP TIME?: For its adherents, the XRP token and its associated blockchain have long typified a core goal of crypto: removing friction in the global financial system. A main proposed use case: cross-border remittances, something that’s not exactly super cheap or easy via conventional banks. Yet, XRP has languished after U.S. regulators said in 2020 that it’s a security. Major exchanges delisted it. But Ripple, the company behind the token, fought that ruling and last week got some qualified good news: XRP sometimes isn’t a security. Major exchanges changed their tune and agreed to list it again. So now the question becomes: Can XRP, whose price shot up after the court ruling, start achieving that goal?
• DIGITAL BONDS: For years, there’s been talk about the allures of moving conventional financial stuff onto blockchains: stocks, bonds, whatever. There is truly very little to show for all the hype, and many Wall Street blockchain initiatives are dead and buried. And yet! Hope is not lost. Take U.S. Treasuries, as an example. There are some promising signs that digital versions of the oldest of old school financial products are gaining traction. Lest you think I’m adding to the hype: This is still nascent. But digital bonds do seem increasingly to be becoming a thing.